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Beats Music Acquisition Gives Apple A Way Out Of The iTunes And App Store Traps

There are two ways to look at Apple'sApple's $3 billion acquisition of Beats Audio. One treats Beats as a brand infusion cut from the same cloth as the hiring of Burberry CEO (and Forbes Power Woman) Angela Ahrendts or former Yves St. Laurent CEO Paul Deneve. The other focuses on the Beats Music subscription service as a hedge against falling iTunes revenues. The actual quality of the company’s Beats by Dre headphones was clearly not the selling point at any rate. (More on the premium signature headphones of hip hop stars here.)

Not to discount the brand mojo of Beats, which has been arguably the most important aspect of its success, but it is the Beats Music product—and the model it implies—that interests me the most. Beats Music is a decidedly different approach to a subscription music service than either the market leading PandoraPandora (recently cited with 31% of the market) or Spotify (with only 6%). Matt Peckham writing at Time.com describes Beats Music as, “a hybrid of Spotify and Pandora: a sort of middle ground, on-demand music service that marries the former’s expansive catalog and direct control of it, to the latter’s ‘What do I listen to next?’ taste curation — though in Beats’ case, it emphasizes listening lists cultivated by human tastemakers over rote computer algorithms.”

Although Apple’s own iTunes Radio has surpassed Spotify in very short order with 8% of the market, its radio station model lacks both the personalization of Beats or the directness of Spotify. Although it has among the largest catalogs of music (26 million songs compared to Pandora’s paltry 1 million or Spotify and Beats’ 20 million) iTunes Radio does not make it easy to hear exactly what you want to hear—unless you buy songs within the app, of course. For people interested in buying music from iTunes, the Radio service is a workable discovery engine to find songs adjacent to songs you like, but fewer and fewer people are interested in buying music directly. Apple’s Eddy Cue is well aware of this trend.

To satisfy the record companies, Apple had to apply friction to the songs bought through the iTunes Store. But to satisfy its customers it had to allow them to manage the piles of music on CD they already owned (and had already paid for), and the friction level here needed to be as low as possible. Run this movie forwards as Apple tries to get its users to move their music to its cloud services and it starts to get complicated. The music you bought from Apple is already in the cloud, but the music you bought on CD or electronically elsewhere need to be intentionally put into the cloud to be accessible on all of your devices via iCloud. But the $25 a year iCloud Match service which allows you to put the ex-Apple music you own in the cloud is capped at 25,000 songs. So if you have amassed a massive library (as I and many other music fans have) you then have to perform a Sophie’s Choice about what to put in the cloud. This is time-consuming but not intrinsically difficult. Have I done this with my music library in the 2-and-a-half years the service has been available? Nope, and I bet many other have not as well.

This situation is similar to why Circles in Google+ doesn’t work. Great idea, but nobody spends the time to set it up or keep it current. Time and time again we learn that if you make things too difficult or complicated, people just tune out and go for something—anything—easier, even if it’s not as good. The great advantage of streaming services is that there is not much to set up or maintain, and they are cloud-based already so they work on all your devices.Owning music that is inconvenient to access is like not owning it at all. What is interesting about Beats Music is that it gives you three ways to specify what you want to listen to and they are all quick and fun. The first method is that when you set up your account it interviews you (briefly and in a graphic, game-like way) about what kinds of music you like. It then uses that data to make specific recommendations of artists or playlists to listen to. The second method asks you to describe your present situation in a madlibs-like sentence with drop downs of pre-formatted choices (some of them funny or rude). When you click “play the sentence” the app delivers a playlist tuned for that listening context.

The aspect of Beats Music that has gotten the most attention are the curated playlists from music content brands, like Pitchfork and Rolling Stone, as well as in-house editors and recommenders. These actually take several forms in Beats Music. There is a tab of “Highlights” which is the editorial front page (unclear if there is some amount of personalization invloved in what different users are shown here.) Then there is a “Find It” tab that presents sub-genres finer than those presented in the signup process (like Americana or Reggaeton and Urbano), there are playlists to go with specific activities (related to those you can generate through “The Sentence” tab) and there are the aforementioned curated playlists.

As you listen, you can tweet what you are listening to, “heart” or “Un-heart” the song, or dive into the album that the current song is from. Altogether, Beats Music gives you a lot of different ways to provide data to the apps machine learning algorithms which help match you to curated playlists that should be of interest. Spotify bought The Echo Nest in March, a move which has put many competitive services like Rdio, iHeartRadio, Deezer and Rhapsody, that rely on The Echo Nest’s APIs at peril. Apple must appreciate that Beats seems to be creating their own machine learning technology (see this job listing from last Fall.) As to how robust that technology is and how well it adapts to all of the data that users emit over time remains to be seen. The AI requirements of their system are fairly huge.

One name that has not been mentioned much in all of the coverage of the Beats acquisition, is Nine Inch nails frontman and soundtrack composer Trent Reznor, who has served as Chief Creative Officer for the Beats Music project. A lot of Reznor’s ideas and sly humor are evident in the result , and this makes it the kind of app that Apple would have a hard time making on its own. Although Apple products have a style (thank you Steve Jobs and Jony Ive) they are almost universally too tasteful to have a personality. This is something that Beats Music clearly has. It remains to be seen how much Jimmy Iovine will engage Reznor with projects at Apple—when Reznor is not “screaming his lungs out” (as Rolling Stone put it) on tour with NIN, that is.

For Apple, Beats Music offers a model for how to deliver content to users in a way that does not feel like marketing. The great weakness of the iTunes Store and the App Store that descended from it, is that customers are barraged by marquis recommendations and lists of popular content that have earned their position through some manner of promotion, be it viral or paid. In the old-time music business this was melodiously termed “Payola.” What you see is not there because anyone thinks that you uniquely might like it, but just because these products are big and popular and highly-promoted.

The 99¢ song model in iTunes begat the free or at best 99¢ app on the App Store. This pricing model has led developers to make cheap, throwaway products that they must promote heavily and users to have home screens littered with unused app icons. Meanwhile, Apple’s customers update their hardware (and system software) so regularly that it has been suggested that its actual business model is “hardware as a service.” That being the case, moving to a subscription model for both content and apps would make a lot of sense. The user’s experience would then be of accessing only what they want and need when they want and need it. And the recommendations they received would be meaningful because, hey, you’re paying us anyway.

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Well, some things here sure need quantification and a bit more perspective. Yes, streaming services are growing, that much is true, but they still only account for a fraction of music sales. iTunes has 800 million customers with credit cards on file (plus an unknown number of voucher- and gifting-only users), Spotify has 1/80th of that in paying users (10 million) and Beats a mere 250k. Calling iTunes a trap at this point is a misrepresentation of reality. If you add brick and mortar sales, physical online sales and buying services like iTunes, Amazon etc. together, streaming becomes an even much smaller fraction of the actual business. The other problem is of course, that there is absolutely zero proof that streaming is profitable for anybody – the vast majority of advertising and subsequent sales in streaming is what exactly? Yep, albums for purchase. One might see the catch-22 here.

The theory is that sales decline, because there is a discovery problem. The truth might be that sales decline, because people, once they bought the stuff they like, don’t care much for the rest. I bought some albums 4 or 5 times in my life, because legacy media was not durable, vinyl, tapes etc. degraded over time. Since my music is digital this will not happen again ever, the approx. 2,800 digital albums I own now will last for the rest of my life.

Your point about the 25k limit in iTunes Match is a valid one (I am affected as well), but I would argue that less than 1% of he world population own more than 2,500 records.

Good clarification about the current size of the streaming market. But the point it that it is growing and other sales channels are declining. Your point about buying the same album five times is spot on about why iTunes is a trap for Apple’s users first and for Apple eventually. If we don’t believe that buying stuff on iTunes is the terminal purchase, if we know there will be other platforms on which we have to pay AGAIN in the future, a lot mor doubt and friction comes into the (otherwise) one-click purchase decisions. One-click + ??? = no sale!

Curation on Beats Music is slightly more interesting than Spotify’s version but isn’t a game changer. The entire music as a service industry could easily be turned upside down by someone willing to take a few minor risks. More thoughts on this here… http://www.alternapop.com/2014/05/28/thoughts-apples-acquisition-beats/

You’re right that seen from a larger music perspective (and particularly an artist’s perspective) the streaming services are fairly similar. Apple buying Beats for its headphone tech only makes sense when you consider that Apple’s own headphones have historically underperformed their other products. The post you point to is rather cagey, however, about what features will, as you say, turn the industry upside down…

That is to say that within the set of popular music streaming services, Beats recommendation methods are somewhat innovative and the question is will the infusion of cash from Apple help them to ramp up the creativity or just be money in the bank for Dre and Iovine…

Anthony, you nailed the verve of the Internet with this statement: “What you see is not there because anyone thinks that you uniquely might like it, but just because these products are big and popular and highly-promoted.”